Bitcoin and money laundering | Oberheiden PC


Bitcoin was and continues to be both an innovation for companies looking to streamline their operations with blockchain technology as well as a challenge for federal agencies pursuing uniform regulation of cryptocurrencies. At the same time, cybercriminals have capitalized on Bitcoin to help them carry out elaborate money laundering schemes.

Since Bitcoins are online currencies without a single financial authority and operate in relative anonymity, criminals would rather turn to online exchanges rather than physically laundering mounds of money across international borders.

This article explains Bitcoin and its use in money laundering, the increase in money laundering, and the recent federal crypto laundering and crypto fraud investigations.

Bitcoin Meets Money Laundering: Crypto Laundering

Bitcoin was the first blockchain cryptocurrency that became extremely valuable. More and more people are willing to trade Bitcoin for goods, services and money. Bitcoin transactions are stored in the decentralized public ledger and are verified using a substantial amount of computing power. “Decentralized” here means that no entity or person controls the Bitcoin network.

Crypto laundering is broadly defined as the concealment and movement of illegally obtained digitized currencies for the purpose of making them appear and appear legal. Cryptocurrencies are becoming the preferred payment method for cybercriminals for a variety of reasons, including the following: difficult to trace; lack of coherent federal regulations; low transaction costs; lack of financial intermediaries; ease of use of cryptos; etc. Finding and tracing laundered cryptocurrencies continues to be a major problem for law enforcement.

The increase in money laundering through crypto exchanges

The advent of blockchain technology secured by cryptography has enabled a whole new payment system. Traditional financial systems require a central bank authority such as the Federal Reserve, while there are no central authorities or supervisors with cryptocurrencies. The technology behind cryptocurrencies such as Bitcoin is the blockchain—The decentralized ledger without a single controlling entity or person.

Before crypto transactions, money laundering fiat currencies required the criminal to have a bank account and complete all bank verification and identification procedures before attempting to transfer the illegal funds to multiple bank accounts controlled by the bank. criminal. These activities are heavily regulated by a central banking authority.

Crypto exchanges are an innovation for the cybercriminal who seeks to launder assets. With crypto exchanges, there are far fewer identification measures required and, most importantly, there is no centralized authority. Transactions only need the sender and receiver wallet addresses for transfers to take place. Such transfers are not monitored, reported or reviewed by any third party intermediary or banking authority. There are also no paper traces with crypto transactions apart from registration on the blockchain.

At the start of the crypto era, cybercriminals would ‘cash in’ one of the most common cryptocurrency exchanges. However, due to the increase in crypto laundering schemes, many crypto exchanges have increased their anti-money laundering (“AML”) and know-your-customer (“KYC”) rules. This, in turn, forced cybercriminals to find another way to supplement their crypto scams.

Instead of turning to major exchanges, cybercriminals are now using unlicensed exchanges, many of which operate from foreign jurisdictions with little to no AML / KYC rules or which have no extradition treaties with states. -United.

To further complicate matters for law enforcement, cybercriminals have implemented certain tools to further mask the movement of their illegal funds, such as ‘chain hopping’ (quick passage to and from multiple cryptocurrencies ) or “mixing bitcoin” (mixing illegal funds with legitimate coins from other users.)

“With the introduction of new technologies comes the potential for exploitation by cybercriminals. Criminals are taking advantage of the novelty of cryptocurrencies to launder money and evade the anti-money laundering laws of several jurisdictions. Crypto laundering has prompted many global regulators to take action and attempt to bring cryptocurrencies, online exchanges, transfers and exchanges and other transactions within the scope of existing AML regulations. or create new legislation. This increases federal control over the operations of companies that use blockchain technology and requires a lawyer to be hired as soon as possible if you find yourself in the middle of a federal investigation for an alleged crypto laundering program. – Dr Nick Oberheiden, founding lawyer of Oberheiden PC

Cryptocurrency and Money Laundering Investigations by the Department of Justice

The Department of Justice (“DOJ”) has been particularly active in investigating cryptocurrency investment scams, ransomware attacks using cryptos and other illegal crypto systems. Below is a list of some recent DOJ investigations:

  • September 8, 2021: The United States Attorney for the Southern District of New York announced charges against Mr. Ackerman and others for setting up an alleged cryptocurrency “investment” fund and recruiting hundreds of investors in the investment club. Investors contributed in US dollars and were told their investment would be used to invest in Bitcoin and other cryptocurrencies. Instead, the rates of return cited by Mr. Ackerman were wrong.

    Mr. Ackerman had substantiated his false claims by falsifying screenshots of accounts that investors were seeing. Instead of investing and trading for the investment club’s investors, Mr. Ackerman stole around $ 9 million in investor contributions and used that money to afford a lavish lifestyle, including the purchase of real estate, Tiffany jewelry, vehicles, travel, and personal security services. Mr. Ackerman has pleaded guilty to orchestrating this multi-million cryptocurrency investment program that resulted in losses for investors of over $ 30 million.

  • June 29, 2021: The North Texas District Attorney’s Office announced a plea by Mr. Hopkins, who called himself Doctor Bitcoin, for operating a money-to-crypto converting business and converting between 550 000 and $ 1.5 million over the course of about a year.

    The plea deal notes that Doctor Bitcoin admitted that he runs a business that converts US dollars to Bitcoin for a fee and often sends Bitcoins to clients’ crypto wallets without verifying the source of the money. He also explained to a client how to bypass financial institutions reporting requirements and told him to lie about the purpose of the business. In addition to failing to conduct extensive verification procedures under federal law, Doctor Bitcoin also failed to file currency transaction reports for high value transactions.

  • June 7, 2021: The DOJ seized 63.7 Bitcoins, valued at $ 2.3 million, which were paid to DarkSide ransomware extortionists. The funds are allegedly from a May 8e ransom paid to individuals in the DarkSide group who had targeted Colonial Pipeline. This was a very public ransomware attack that forced Colonial Pipeline to take parts of its infrastructure out of service.

    Specifically, DarkSide had accessed Colonial Pipeline’s computer network, and Colonial Pipeline was invited and paid a ransom note of around 75 Bitcoins. Law enforcement was able to examine the public ledger and track multiple Bitcoin transfers. This allowed law enforcement to identify the proceeds of the victim’s ransom payments. The FBI had the “private key,” which allowed it to access assets from the specific Bitcoin address. The assets of this computer invasion and money laundering program were seized under both asset forfeiture and criminal laws.


As Bitcoin sweeps the world with increasing acceptance, criminals are staying ahead of the curve in the crypto realm by constantly developing new ways to carry out online money laundering schemes involving Bitcoin.

Federal regulation of Bitcoin and other cryptocurrencies is inconsistent at best and non-existent at worst. Despite this, many federal agencies have increased their investigative tools and efforts to investigate and prosecute individuals and businesses suspected of being involved in crypto laundering. The zealous attitude of many federal agencies such as the DOJ and the SEC can put companies that use blockchain technology at risk of a federal investigation.

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